Nepal’s promotion of electric vehicles through lower taxes is a classic case of the poor being disadvantaged to finance the greening of the rich.
There is no doubt that Nepal must do more to increase the adoption of electric vehicle. Nepal is still far from achieving its goal of having electric vehicles represent at least 20 percent of the total vehicle fleet, which is currently less than 1 percent.
This year’s budget, announced in May 2021, abolished excise duty and reduced customs duty from 40 percent to 10 percent on import of electric vehicles. It reversed provisions in the previous year’s budget that had increased excise and customs duty on electric vehicles. Taxes have been an easy policy target for promotion of electric vehicles. After all, customs and excise duties are the single largest factor driving up the cost of those vehicles in Nepal.
Despite fully endorsing Nepal’s goal to increase the use of electric vehicles, I’ve long struggled to explain why I want taxes on electric vehicles to be raised. It is not a popular view.
Some 25 years after driving with a clean record, and a driver’s license in two countries, I failed the driving exam in Nepal when I returned home this year and applied for one. It wasn’t that I was casual about it. I bought and studied all the model test papers for the written exam. I went for three days of driving practice around the course where the test was to be held.
The pass rate in Nepal’s driver’s license exam is dismally low, approximately 25 percent. In comparison, in India, it is closer to 70 percent, even though India has half the per-capita personal vehicle ownership of Nepal.
The Department of Transport Management, which manages driver’s licenses, argues that strict driving exams are necessary to keep our roads safe. This is a rubbish claim, widely discredited by evidence, and masks a different reality: vehicle ownership is simply not a goal for Nepal.
The government simply doesn’t want to encourage people to own personal motorized vehicles. Reasonably so, the country can’t really afford it and the road infrastructure isn’t quite there to support expanded vehicle ownership. Along with the low pass rate on driver license exams, high duties on vehicles are also an indicator of the intent to discourage vehicle ownership.
The goal of disincentivizing personal vehicle ownership is a sad reflection of our poverty and state of development. But it is our reality, and one that should encourage promotion of public transport, and now shared rides, as we build towards a future of prosperity where we can all own cars, bikes, and other types of motorized vehicles.
It is within this reality that we should ensure the promotion of electric vehicles don’t open floodgates to vehicle ownership. Even with the higher taxes in last year’s budget, electric vehicles were still cheaper in Nepal than conventional ones.
Even under high taxes, the composite taxes for electric vehicles were 120-140 percent. Conventional vehicles, on the other hand, face composite taxes of approximately 250-300 percent. These tax differences more than offset the higher base price of electric vehicles relative to their comparable equivalent conventional vehicles.
There is a cost to reducing vehicle import duties when those taxes account for approximately 40 percent of all government income. This loss of revenue directly affects service delivery to the poor. Last year, for instance, the government is estimated to have raised approximately Rs 100 billion from duties on vehicle imports. The entire education budget that year was Rs 161 billion.
Even taking two wheelers into account, vehicle ownership in Nepal is limited mainly to the rich. The poor must rely entirely on public transport, which is weak, unreliable and lacking any real investment to enhance its quality.
Imports of Kia Niro, an electric vehicle, stopped last year after its price increased to Rs 12.5 million. This year, with the revised budget, the price is down to Rs 7 million. How many underprivileged children could you educate with Rs 5.5 million annually?
Those driving the Kia Niro, and other electric vehicles, believe they are reducing Nepal’s fuel imports, increasing electricity demand, and transitioning to clean transport. But for millions of poor Nepalis deprived of quality education, health, and other social services, because their government cannot afford it, it will be time to start building towards another revolution for equality.